BRADENTON, Fla. - For Sheila Tyson, Jefferson County, Ala.'s exit from bankruptcy seven months ago stings as much today as it did then.
Tyson, a Birmingham city councilor and self-professed community advocate, wants to reinvigorate local opposition to the cornerstone of the county's reorganization plan: the $1.8 billion of 40-year sewer refunding warrants sold in December to write down $3.1 billion in related debt.
It's no coincidence, she said, that her efforts come as the first appeal hearing of the Chapter 9 bankruptcy plan nears on Monday, after several delays. Oral arguments will take place on the county's motions for partial dismissal.
"I just feel like we're not getting enough [media] coverage," said Tyson.
"Our bankruptcy is way larger than Detroit's. We are in a $14 billion crisis," she said. "There's not enough people living in Jefferson County to pay back $14 billion."
The $14 billion figure is what former broker-dealer Calvin Grigsby, who is now a financial advisor and attorney, calculates sewer system customers will incur in rates over the life of the debt sold in December largely because of accreting principal and interest associated with the transaction, according to Tyson.
The debt service schedule in the official statement for the $1.8 billion deal says $6.61 billion of interest and principal will be repaid through 2053. Senior-lien bonds priced with yields as high as 6.9% and yields on subordinate-lien bonds reached 8%, according to the OS.
December's offering was structured as $1.2 billion of current interest bonds, $105.3 million of capital appreciation warrants, and $474.3 million of convertible capital appreciation warrants. Capital appreciation bonds typically are sold at a deeply discounted price with the investment return in the form of compounded interest.
Jefferson County's capital appreciation warrants have escalating accreted values to maturity. The convertible capital appreciation warrants accrete in value until October 2023, and then convert to current interest bonds.
The bankruptcy court approved the sewer refunding deal and the rate structure to pay the debt. The court also agreed to retain jurisdiction and oversight for the life of the warrants.
Grigsby is representing more than a dozen elected officials and residents known as the Bennett ratepayers who filed three appeals of the county's reorganization plan. He has argued that much of the sewer debt refunded in December was unconstitutional, tainted by corruption, and therefore issued illegally in 2002 and 2003.
Jefferson County Commission president David Carrington said the county remains confident in its legal positions regarding the outcome of the appeals.
The county's attorneys have argued that the appeals are moot because the underlying legal challenges were dismissed when U.S. Bankruptcy Judge Thomas Bennett confirmed the county's plan of adjustment on Nov. 22.
When asked if the county's financial situation has improved since emerging from bankruptcy, Carrington said, "We continue to see improvement, particularly with the economic development opportunities that are in the queue." He did not offer specifics.
At Monday's hearing, appellants are expected to focus on the deal that led the county out of bankruptcy, how it impacts residents, and the corruption-tainted underlying debt that was refunded.
County attorneys have said in filings that those arguments are "irrelevant" as they pertain to their motions for partial dismissal.
Tyson's name is not among the ratepayers involved in the appeal because she was in the hospital when litigants signed onto the original suit. She was among those who asked Grigsby to file the legal challenge, she said.
Tyson is also trying to schedule a community meeting before the appeal hearing, and to publish her office's newsletter with information from Grigsby to explain to people "how the sewer [rate] increases will be coming down on them every year," she said.
People don't understand how the increases will gradually affect them, and some bills will increase to $317 a month by the year 2022 just for sewer, Tyson said. That does not include the monthly water bill.
"What we're trying to do is [go] to court now to ask the court system to hear our case," said Tyson. "We haven't had our time in front of the judge to tell him that we don't think this is fair."
Tyson described her supporters as the "working poor" who haven't even been able to raise funds for legal expenses, let alone funds to assist people who cannot pay their sewer bills.
Grigsby told The Bond Buyer previously that he is working on contingency to further the case, which includes a claim for $1.6 billion. The amount is being sought to recompense all sewer system ratepayers for overcharges, and is related to the amount of corruption-tainted warrants and swaps calculated by Grigsby.
As an elected City Council member, Tyson said she has tried unsuccessfully to get city funding to support the ratepayer's lawsuit.
In the county, and particularly some of the poorest districts in Birmingham, people are already feeling the pain of rising water and sewer rates, and some 1,500 residents have had their water turned off because of delinquent payments, she said.
A similar situation is playing out in bankrupt Detroit where protestors this week are pushing back against that city's water and sewer department, which has stopped service to more than 15,000 residents since an aggressive shutoff program began this spring, according to the Detroit News.
Though thousands of Detroit's customers had their water restored within 48 hours after paying their overdue bill or entering a payment plan, the paper reported that U.S. Bankruptcy Judge Steven Rhodes said in a court hearing Tuesday that the water bill flap has "caused a lot of bad publicity for the city it doesn't need right now."
Detroit filed its Chapter 9 petition in July 2013 telling the bankruptcy court it had an estimated $18 billion of debt, making it the largest municipal bankruptcy in U.S. history.
A more recent report from Detroit put total obligations at $10.4 billion, including $4.3 billion for retiree health care and $3.12 billion for pensions.
Jefferson County filed for bankruptcy in November 2011 citing a total of $4.1 billion in long-term debt, none related to retiree obligations. Of the total, $3.14 billion was for sewer warrants. At the time, it was the country's largest municipal bankruptcy, though it was later eclipsed by Detroit.
"There is no way if you are going into bankruptcy with $4 billion in debt, that you should come out with $14 billion" because of the December sewer warrant sale, said Tyson, who recently ran for a seat on the County Commission but was defeated in the primary.
"I would have done everything I could within my legal rights to help with this appeal as a county commissioner," she said. "If we can't get this appeal, these sewer rates are fixed on the poor people's backs."
Some 42,909 or 35% of the 120,000 residential sewer system customers in Jefferson County "who owe this $14 billion live in low income or poor census tracts as classified by the U.S. Department of Housing and Urban Development," according to Grigsby's analysis, which he provided to The Bond Buyer.
Jefferson County's bankruptcy judge "has saddled its citizens connected to the sewer system with over $14 billion in debt for 40 years for what is estimated to be no more than $1.5 billion in capital improvements," he wrote.
"The complacency of the citizen and sewer ratepayers has given aid and comfort to the county commissioners and the judge who approved sewer bills going up by 450% to an average of $237 per month that will be enforced by evictions and foreclosures and water shut-offs by the federal bankruptcy court itself, and not an elected board of commissioners who might give a break the citizens and ratepayers who cannot afford to pay," Grigsby's analysis said.
Grigsby also made a number of allegations in the analysis, including that the bankruptcy "judge's order to make innocent ratepayers, forced with threat of water shut-offs and evictions and foreclosures, to repay $14 billion when the value of the sewer system is no more than $1.5 billion is consumer fraud of the highest order."
Carrington said he has had past conversations with Tyson about her concerns with sewer system rates. He also said "she asked me for a campaign contribution, which I respectfully declined."
When asked about the analysis Grigsby submitted for Tyson's newsletter, Carrington said, "Since this is a matter of active litigation, I will reserve my comments until after the appeal."
